A Quick Guide to FIFO – First In First Out

Inventory management is one of the most significant roles of a business. It is essential for businesses to understand the nature of their business and their inventory of goods and accounting. Once a business understands the nature of their goods and how quickly inventory rolls in and out, they need to decide on an accounting system to follow in their business. There are mainly three types of inventory accounting: LIFO, FIFO, and Weighted Average System. In this article, we will discuss what FIFO is.

The complete form of FIFO is – First In First Out. FIFO is a very simple and easy-to-understand inventory accounting system, but it cannot be used for businesses of all natures and can be used only for specific businesses such as perishable products or fresh produce. At the end of the day, the business and the owner need to decide which approach is best for the business, accounting purposes, and tax purposes.

What is FIFO, and how is the method calculated?

First In First Out – FIFO is an inventory management system used by businesses to track inventory and accounting. First-in First-out refers to goods that arrive first in inventory, then sold first, and accounted for accordingly in the ledgers for the business. Under a first-in-first-out (FIFO) inventory accounting management system, the oldest products in inventory must be sold first, and the same rules apply when they are taken into account on the balance sheet and profit & loss statement.

Because the FIFO method uses a first-in-first-out basis that sells the oldest products first, the prices shown in the account books and balance sheet are not the latest in value because they take into account earlier prices for goods and supplies. This can be beneficial to the company when goods prices are falling and maybe disadvantageous when goods prices increase. Depending on the nature of your business and the credit period of the goods, whether your goods and business are cyclical or non-cyclical businesses, you need to decide whether First In First Out, FIFO is the right inventory accounting management system for your business or not.

Frequently Asked Questions about FIFO

• What is the full form of FIFO?

FIFO stands for – First In First Out Accounting Inventory Management System.

• What does the FIFO method mean?

The first-in-first-out method means that the goods that arrive at the warehouse first are sold first, and the same price is reflected in the accounting systems, in the balance sheet, and profit and loss statement.

• Is there FIFO inventory management software available?

Yes! Several inventory software are available for businesses to adapt, such as Vastralaya. Thanks to technology, this not only makes it easier to work but also easier to understand, and all data is always saved in the software.

• Which method is more common in India? FIFO LIFO or Weighted Average?

FIFO and Weighted Average are the two accounting systems allowed in India. According to the latest regulations, India does not allow businesses to adopt the LIFO system. This makes FIFO the most common inventory accounting management system in India.

• What is the difference between FIFO and LIFO?

FIFO stands for first in, first out and takes into account the oldest inventory that needs to be sold. LIFO stands for Last In First Out and takes into account the latest inventory that needs to be sold first.

Wrapping Up

FIFO is one of the main features you need in your clothing ERP software. If your business is facing problems related to managing inventory and stocks, you can consider Vastralaya as your first choice.

For more information, you can contact us at +91-9415403723 or draft a mail to us at supportdesk@dataman.in.